Registration u/s 12AA cannot be denied merely for running pharmacy inside hospital

Income Tax Appellate Tribunal (ITAT) in the case of “St. Barnabas Hospital Vs C.I.T (Exemption) (ITAT Ranchi)” ruled on April 5, 2019 (Appeal Number: ITA No. 269/Ran/18) that in order to grant registration u/s 12AA of Income Tax, the objects of the Assessee trust/society is to be examined and registration for tax exemption cannot be denied merely because Assessee is running a pharmacy inside the hospital. Also, non-maintenance of separate books-of pharmacy cannot be a ground for rejection of registration u/s 12AA.

The case

The society was maintaining a pharmacy inside the hospital for in-house consumption of medicines and treatment packages and for the urgent need of medicines to in-house patients. Although the objects were charitable, registration u/s 12AA of Income tax was denied only because the society was a) running a pharmacy and b) separate books-of the pharmacy was not maintained.

For 12AA registration only objects need to be considered

ITAT agreed that the Commissioner of Income Tax (Exemption) was unjustified in rejecting the registration application u/s 12AA of the Society on the premise that he was not satisfied about genuineness of the charitable activities, only on one ground, that separate books of accounts were not maintained for the pharmacy inside the hospital.

CIT (Exemption) had further erred in not appreciating that at the time of granting of registration u/s 12AA only the objects have to be seen and if found charitable, registration has to be allowed. The Assesses’ main object of running a hospital was covered under section 2(15) of the Act as charitable purposes (“medical relief”). Simply non-maintenance of separate books-of the pharmacy cannot be a ground for rejection of registration u/s 12AA.  Also, having come to know about separate maintenance of books of accounts, the appellant had already started maintaining separate books for the Pharmacy.


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